$19 million rebate from city may seal Galleria-area project

Updated 11:24 pm, Tuesday, August 7, 2012

A San Diego-based developer is in line to get a $19 million incentive from Houston to build upscale apartments, movie theaters and stores about a half-mile from the Galleria.

The city's chief economic development officer, Andy Icken, said the proposed deal is the difference between a job-creating redevelopment project or the existing 1960s-era apartments for years to come.

Icken said developers planning to build on 15 acres at Westheimer and Westcreek have told him that they calculate the $275 million project will make a 3 percent profit, but their investors require 5 percent. Icken said the city rebate of as much as $19.4 million in sales tax receipts would close that gap. Representatives of developer Oliver McMillan declined to answer questions about the deal on Tuesday.

It is the latest proposed use of what is known as a 380. Named for the chapter of the state law that authorizes them, 380s give local governments broad authority to use tax funds for economic development.

Houston has used it 10 times during the administration of Mayor Annise Parker, offering sales tax and property tax rebates, as well as property tax abatements in exchange for commitments to create and maintain jobs, improve public infrastructure and add amenities.

Wednesday's council agenda proposes a 380 for the project known as 4444 Westheimer just inside the 610 Loop, on the other side of the interstate from the nation's fourth-largest mall.

The agenda also includes a 380 as an incentive for the construction of four hotels in the city's East End. Two other projects are scheduled to come before council later this month.

The developments have to pass what Icken calls the "but for" test - that they would not get built but for the city incentive to the developer. Icken insisted that is the case even with the Walmart and the Kroger projects now under construction just south of I-10 near the Heights, though Kroger representatives last year acknowledged that they may have built even without city assistance.

He argued that unless the businesses are exporters, they merely take in consumer dollars that Houstonians would have spent elsewhere in the city. As for the new properties, those, too, may have been built elsewhere in the city without assistance from City Hall, he said.

"Do we want the city to pick it (location), or do we want the private market to pick it?" Craig asked. He also said, though, that the promised new infrastructure could benefit the city.

That infrastructure includes converting a dead-end street into a through street, installing landscaping and traffic lights and more extensive drainage than would be required without the reimbursements.

By Icken's projections, the finished project will yield $1.3 million more a year in property tax than the city currently collects at the site. The new businesses must employ at least 1,700 people for the developer to continue qualifying during the 15-year life of the rebate. The developer also will be getting reimbursed only for public amenities, including the extension of Bettis Drive.

Houston is protected from the project going bust, as well. The rebate would be based on an increase in sales tax collections from the 15-acre parcel. If the sales do not increase enough to support the rebates, the city will not have to pay out.

"You've got to be a successful venture and if you're not, it's your problem," Icken said.